NEW YORK (
TheStreet) -- Investing in packaged-food stocks has become a stale idea thanks to weak volumes and slumping margins.
Take General Mills (GIS - Get Report) It has fed investors' appetite for years with products including Cheerios cereal but the stock has been stuck in the box. Shares closed Monday at $50.43 but are up 1.8% on the year to date.
Last week, General Mills warned investors third-quarter earnings per share (which ran through February) would be in the range of 61 cents to 62 cents per share. This represents a year-over-year decline of 4% and is 10% below Street estimates.
The company, which will report earnings Wednesday, also said revenue for the quarter will reflect about a 1% drop in volume. During the announcement, management described the decline as "consistent with recent food industry trends in developed markets."When the company reported weaker sales in the December quarter, management made similar references to overall industry weakness. In the December quarter, revenue was flat despite slightly better prices contributing to a 1% increase. But this was offset by foreign currency headwinds. Investors should expect a similar currency impact for this quarter. But there is good news: Management figured out ways to boost margins. This has been and continues to be a priority. Gross margins rose by 40 basis points to 36.1% of total revenue. Likewise, the company cut capital expenses in (general & administrative) by 40 basis points to 18.7% of total revenue.
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